Harvard Business Review
Annotated table of contents
Adi Ignatius, the editor in chief of HBR, introduces the article on macroeconomic forecasting in this issue. Relieved to have avoided both economic catastrophe during the pandemic and stagflation in its aftermath, business leaders might like to consider tools for economic analysis that embrace rational optimism.
Idea watch
2. HBR Team, Why entrepreneurs should think like scientists
Exposed to training in qualitative interviews, surveys and A/B testing, start-up entrepreneurs who in addition learned about the scientific method were more successful than peers who had only the initial training. By learning how to formulate, test and modify hypotheses, entrepreneurs became better decision-makers: they showed greater ability to discard unsuitable ideas and to continue to innovate. The research involved 759 European start-ups. An interview with Cosimo Cecchini, a co-founder of Osense, a technology for sustainability start-up, shows how it tested and abandoned two ideas – peer-to-peer lending of products and a platform for rental car companies to enable them to use electric vehicles – before successfully developing a tracking system for Scope 3 carbon emissions.
3. Amy Meeker, Firms led by CEOs from former US frontier areas are awarded more patents
Meeker interviews Lei Gao on his research with colleagues on the relationship between place of birth for CEOs and innovation success, measured as number and market value of patents, at the companies they lead. The researchers collected birth-place data for more than 1700 US CEOs and information about patents, finding that firms led by CEOs born in former frontier areas had more patents. This suggests that frontier cultures with greater tolerance for risk taking and uncertainty are passed down through generations. CEOs influence their companies’ culture through support for innovation which in turn attracts like-minded employees. The potential negative effects of individualism will be considered in further research.
4. Sophie Bellon, the CEO of Sodexo, on building sustainable food systems
Bellon became the CEO of Sodexo, the family catering company set up by her father, in response to calls to address the crisis created by the Covid pandemic. The company retrenched and adapted to the drop in demand for hospitality services and since the recovery it has set itself new objectives to help build sustainable food systems. It is close to meeting its target to reduce waste by 50% by 2025, and it is tracking its Scope 1, 2, and 3 emissions with a view to become carbon neutral by 2040. Equally, it pursues collaboration and integration with partners to reach these objectives across its ecosystem, in different countries and regions. In many settings it now offers exclusively, or predominantly vegetarian menu options and it trains its managers to innovate locally to promote sustainable solutions across the supply chain.
Spotlight: Succession planning
5. Dan Ciampa and Adam Bryant, Power, influence and CEO succession
Ciampa and Bryant bring together the points of view and concerns of the main parties involved in planned successions, the most common type, as opposed to forced successions or strategic successions, after an M&A: the board, the incumbent and the new leader. They argue that the success of the succession depends mostly on the incoming CEO, and provide advice on how to match influence styles, such as assertive persuasion, incentives and disincentives, common vision, and openness and involvement, to particular moments and scenarios.
Hildebrand et al. show how new CEOs build confidence in their leadership, avoiding the speed trap and proceeding with patience and careful, incremental demonstrations of skill. Their research suggests that it takes two years to gain the confidence of all stakeholders. One measure of this confidence is the multiples used to value shares in the company. The article explains how to respond to some typical scenarios, arguing that once established, confidence is the gift that keeps giving, it becomes a virtuous cycle of trust that will continue well into the tenure.
7. Rebecca Slan Jerusalim and Navio Kwok, The vital role of the outgoing CEO
In many cases, the CEO role becomes a part of the core identity for the individuals concerned, and letting go will release strong emotions. But when well supported and carefully handled – and the article offers useful pointers on how to do it – the outgoing CEO could help set-up the new one and the company on a positive path.
Features
8. Erin Meyer, Build a corporate culture that works
While many efforts to define organisational culture struggle to go beyond abstract language and (rather vague) good intentions, Meyer grounds the process in the use of dilemmas, clear prescriptions for action, nuanced descriptions of behaviours and a sense of limits and limitations. Once defined, cultures become entrenched when they guide hiring decisions and strategy, and the article offers examples from companies where this works well.
Open expressions of emotion in the workplace can pose a challenge for most people. This article sifts through common misconceptions: that discussing emotions at work is unprofessional; that talking about emotions is dangerous; that people who share their emotions are asking you to solve their problems. It then provides a framework for managers who want to offer help, depending on whether the employee seems to be coping and/or is engaged in time-sensitive tasks.
10. Philipp Carlsson-Szlezak and Paul Swartz, How to assess true macroeconomic risk
Recent economic conditions have provided new ammunition for the critique of mathematical models in economics and the predictions based on them. For instance, rather than leading to an economic catastrophe, the sharp rise in unemployment during Covid was quickly corrected, a long depression was averted as economic activity rebounded, and inflation has been tamed relatively quickly. For executives who need to make assumptions about macroeconomic developments, to increase their chances of getting it right, Carlsson-Szlezak and Swartz propose that they cultivate judgement and rational optimism. More specifically, they recommend three analytical habits: letting go of models, being wary of doom mongering in the media, and trying out a variety of frameworks to make sense of specific situations. This eclectic approach to ideas is applied in a discussion of the complex relationships between economic aggregates, such as unemployment, supply capacity, growth rate, trend of output and interest rates, and the role and impact of politics in the economy.
11. Andrei Hagiu and Julian Wright, Will that marketplace succeed?
Hagiu and Wright note the emergence of a wide spectrum of marketplace businesses and the development of marketplaces around successful products. Despite this effervescence, success can be short-lived. To guard against failure, entrepreneurs and investors need to develop a large set of indicators to assess the potential for network effects, and specifically the amount of additional revenue available for sellers. Greater fragmentation is also associated with a greater number of transactions and should be tracked at different scales – regional, national, global. Differentiation of sellers gives buyers a better chance to find a match. Equally, marketplaces need to be set up to enable discovery, facilitate the completion of transactions and make switching unlikely.
Hochstein et al. propose a set of three metrics to anchor an innovative framework to assess churn risk and manage retention or expansion. Customer-relationship quality (representing 25% of total score) is estimated based on quarterly or annual net promoter scores and referability. Product usage (25%) derives from measures of how much the customer uses or needs to repair the product, collected in real time. Value realisation (50%) identifies the extent to which the client achieves specific goals. Scores of 70 and higher reflect great health, those between 51 and 70 require active attention to maintain the positive trend, while scores between 30 and 50 suggest that with sustained intervention the health could be restored. With some exceptions, relationships that receive lower scores may be considered sunk costs. A detailed example of a BigCommerce company that started applying the framework for a set of 3000 clients, in two stages, shows how it learned to use it and adapt it and offers advice to others.
13. Mark DesJardine, How to respond to shareholder activism
DesJardine suggests that, met with the right attitude and a practical approach, shareholder activism often has the potential to become an opportunity for a company. He shows how the three main components of the activist playbook, their typical arguments, could be usefully reframed. For instance, knowing that activists link performance failures to organizational weaknesses, crafting stories about failed M&As, poor capital allocation, weak governance or sustainability risks, managers can do the same due diligence research to establish whether performance problems are real or simply due to communication problems. Similarly, managers could benefit from beating activists at their own game in terms of developing and communicating a plan of action and creating a narrative in support of change.
14. Robert S. Kaplan and Karthik Ramanna, Disclosing downstream emissions
Building on their work on measuring emissions in supply chains, Kaplan and Ramanna provide an analysis of when and how to take account of emissions generated by the use of products and services. They propose to limit downstream accountability to companies that sell their products directly to consumers, in cases where the design of the products impacts the amount of emissions from use or disposal, such as low-energy use versions of packaged food, detergents, automobiles or games consoles. The responsibility of companies should be limited to unit of use, over which they have some control, rather than total emissions, which reflects customer usage habits. Companies are also encouraged to estimate downstream emissions from the disposal of products. The authors suggest that downstream emissions should be disclosed, rather than included in company accounting. They provide a detailed illustration of a (fictional) tire company and discuss implications for fossil fuel enterprises.
15. Regina E. Herzlinger, Duke Rohlen, Ben Creo, and Will Kynes, The middle path to innovation
Herzlinger et al. argue that the two dominant approaches to innovation – incremental product upgrades and refreshes on the one hand and big-ticket speculative risks that require building an organisation around transformative products on the other – have led to only modest productivity growth in the economy. Instead, they propose a growth driver model for established companies, which is superior in terms of risk, cost, strategy, control and talent. Companies would partner with outside investors to identify promising innovations and would establish separate accelerator companies to develop them. The model is shown in practice through a detailed discussion of examples such as Cordis, a med-tech accelerator set up by Ajax Health and investment partners Hellman & Friedman and KKR, Blumhouse Productions in partnership with Universal, and incubators supported by the US Department of Defense.
Experience
16. Ginka Toegel and Jean-Louis Barsoux, Stop playing favourites
Playing favourites is quite common, but managers are often unaware both that they engage in it and that others notice the giveaway subtle changes in tone, attentiveness, or willingness to praise and encourage. Favouritism has damaging consequences for morale, as perceptions of unfairness become entrenched and undermine motivation. To bring awareness to the situation, the article offers a self-assessment guide consisting of three questions around seeking the other person’s company, acknowledging their capabilities and assisting their growth. Togel and Barsoux then look in more detail at examples of relationships that have soured and provide tools and tips to make amends and even reset the dynamic.
17. Nitin Nohria, Are the right people in the right seats?
Nohria discusses the interpersonal relations within a leadership team of a large high street property company from the point of view of a new CEO. In this scenario, popular, experienced colleagues have different views regarding strategy, the CFO has lost the trust of the markets, and an important ally is considering a job offer from a competitor. How could the CEO reshape her team and achieve her target to recover performance and expand following the Covid-19 pandemic? Experts weigh in with pros and cons for her options.
18. Eben Harrell, The promise and peril of AI at work
Harrell reviews several books that explore the potential of AI, ranging from believers in ‘the singularity’ the radically new world of merged human and machine intelligence, to pragmatic discussions of the toolkits now available and their uses, to more cautious arguments for slow productivity at the scale of human lives, rather than projects or sprints.
19. Alison Beard, Life’s work interview with Darius Rucker
Darius Rucker is a US Black country singer who started his music career as a member of the pop band Hootie & the Blowfish. In this interview he introduces his memoir, Life’s too short, speaking about his love of music and the power to endure the ups and downs of the music industry, his relationships with his band mates, and his response to prejudice and blatant racism: letting it go and believing that success is the best revenge.
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